10 Commercial Real Estate Terms You Need to Know Before Your Next Lease Negotiation

If you are new to commercial leasing, haven’t negotiated your lease in a while, or are in the middle of negotiations and don’t know how to read the agreement, we’re here to help. Here are 10 commercial real estate terms you need to know.

1. Triple Net Lease (NNN)

A triple net lease (NNN) is an agreement where the tenant is responsible for paying their share of the operating expenses of a property, including property taxes, insurance, and maintenance. These expenses are in addition to the base rent.  The landlord typically retains responsibility for structural issues and non-operating expenses (leasing commissions, tenant improvements, legal, marketing, etc.)

2. Gross (Full Service) Lease

Unlike in a triple net lease, in a gross lease, the landlord is responsible for the property’s operating expenses such as maintenance, insurance, and property taxes. The tenant pays a single rent amount.    

3. Base Rent

Base rent is the minimum rent required in the lease agreement. The base rent excludes expense recoveries such as utilities, property taxes, and maintenance fees.

4. Common Area Maintenance (CAM)

In a multi-tenant building with net or triple net leases, tenants pay a share of the cost of maintaining the common areas as part of operating expenses. A lease’s common area maintenance costs may cover the maintenance of the lobby, hallways, parking lot, and landscaping.

5. Escalation Clause

Escalation clauses allow landlords to raise rent. It is common for landlords to increase rent to keep pace with inflation.  Periodic rent increases can be stated fixed percentages or dollar amounts, or variable tied to changes in  the Consumer Price Index.

6. Tenant Improvement (TI) Allowance

Landlords may offer to pay for some or all of the costs to make the leased space suitable for the tenant’s business needs. Read more about tenant improvements here.

7. Percentage Rent

Percentage rent agreements are sometimes used in retail leases. In these agreements, the tenant pays the landlord a base rent plus a percentage of their gross sales once sales pass a stipulated threshold.  

8. Usable v. Rentable Square Footage

A commercial lease typically outlines usable and rentable square footage. Usable square footage includes the space that is exclusively for the tenant. Rentable square footage is the usable square footage plus a prorata portion of the building’s common areas.  

9. Right of First Offer (ROFO)

When a lease provides a tenant the right of first offer, the tenant has the opportunity to lease additional space or purchase the property before the landlord offers it to another party.

10. Holdover Tenant

Leases often include clauses that govern what happens when a tenant’s lease term is expired. A holdover tenant is a tenant who remains on the property after the lease term expires without the landlord’s consent. The lease clause stipulates the rent rate and conditions that govern any holdover period, typically at a higher/punitive rent. This ensures the landlord is compensated in the event that a tenant remains past their lease term, and encourages the tenant to renew or leave.

10 Commercial Real Estate Terms You Need to Know | Clarity Commercial

If you’re in the middle of lease negotiations or searching for your next tenant, Clarity Commercial can help you negotiate favorable terms. For professional commercial real estate management support, contact Clarity Commercial today.

For more information or to request a free estimate, visit their website at https://myclaritycommercial.com/ or give us a call at (952) 370-224-2699.

Affiliations & Credentials: We are proud members of IREM, CCIM and MNCAR along with various professional organizations and hold relevant certifications in the real estate management field. Our affiliations and credentials demonstrate our commitment to excellence and our ongoing efforts to stay up-to-date with industry best practices. Our team at My Clarity Commercial is dedicated to providing top-quality real estate management services.

In addition to our affiliations, our team also holds relevant certifications in real estate management. This includes certifications such as CPM (Certified Property Manager), ARM (Accredited Residential Manager), and CAM (Certified Apartment Manager). These credentials showcase our expertise,